The Solvency II Law and Delegated Regulation 2015/35 require insurance companies to lay down a remuneration policy with the aim of aligning the personal objectives of the members of staff with the long-term interests of the company, and of complying with remuneration practices that contribute to effective risk control.

In accordance with Delegated Regulation 2015/35, insurance companies shall take all the following principles into consideration: 

1. the remuneration policy and remuneration practices are established, implemented and enforced in accordance with the company strategy and risk management strategy, the risk profile, the objectives, the risk management practices and the long-term interests and performance of the company as a whole, and include measures focused on avoiding conflicts of interest; 
2. the remuneration policy contributes to a sound and effective risk management and discourages risk-taking that exceeds the level of tolerated risk established by the company;
3. the remuneration policy applies to the company as a whole and provides for specific rules taking into account the tasks and performance of the members of the board of directors and the management committee, of the persons responsible for independent control functions, and of the other categories of staff whose work has material consequences for the risk profile of the company; 
4. the company’s board of directors and, where appropriate, its general meeting[1] set the general principles of the remuneration policy as well as the specific rules for the ‘identified staff’;
5. there is a clear, transparent and effective governance for remuneration, which encompasses supervision of the remuneration policy;
6. the remuneration policy is communicated to all members of staff of the company.
7. the remuneration policy is designed to take into account the internal organisation of the insurance company and the nature, scale and complexity of the risks inherent to the company’s business model and activity. 

Furthermore, the insurance company is expected, in its remuneration policy, at least to ensure that:

1. the remuneration granted does not jeopardise the ability of the company to maintain a sufficient capital basis;
2. remuneration contracts with service providers do not encourage the taking of excessive risks, taking into account the company’s risk management strategy.

Chapter 13 below is also referred to for a detailed overview of the specific rules on remuneration that must be complied with in a group context.

Additionally, listed insurance or reinsurance companies should ensure that their remuneration policy complies with Article 7:92, fourth paragraph, last phrase of the CAC, which stipulates that no variable remuneration may be granted to an independent director within the meaning of the Solvency II Law.

[1] The validation of the remuneration policy by the general meeting is only necessary if it provides for a notice period and a termination payment for non-executive directors.

This section specifies certain principles set out in Article 275 of Delegated Regulation 2015/35 and in point 8.3 below for identified staff receiving significant variable remuneration.

8.4.1. Balanced remuneration

If, for identified staff receiving significant variable remuneration, the ratio of fixed remuneration to variable remuneration exceeds the reference ratio of 1:1 (1:0.5 for the persons responsible for the independent control functions), the insurance company should justify to the Bank why it does not comply with this ratio.

This justification should be communicated in the explanatory memorandum "Non-compliance Section 8.4" to be submitted to the Bank through eCorporate.

On this basis, the Bank will engage with the insurance company to determine whether the remuneration can still be considered balanced.

The Bank will also pay specific attention to very low fixed remunerations.

8.4.2. Deferral of a substantial portion of the variable remuneration

For identified staff receiving significant variable remuneration, the Bank considers that a deferral (of at least three years) of 40 % of the variable remuneration constitutes a "substantial portion" of the variable remuneration within the meaning of Article 275 of Delegated Regulation 2015/35. If a person’s fixed/variable ratio exceeds 1:1, the deferral rate should be higher than 40 %. If an insurance company does not comply with the deferral of the aforementioned portion of the variable remuneration, it should justify this to the Bank in an ad hoc letter.

8.4.3. Financial and non-financial criteria to be used when assessing individual performance

The individual performance of identified staff receiving significant variable remuneration should be based on financial and non-financial criteria to be detailed in the company’s remuneration policy.

The financial criteria should cover a sufficiently long period to reflect the risks taken by the identified staff concerned and should be risk adjusted.

The non-financial criteria should contribute to the creation of value for the company, such as compliance with external and internal regulations, the efficiency of customer service management, the achievement of strategic goals (e.g. environmental, social and sound governance criteria), compliance with sustainability objectives, ethical aspects, turnover of staff, adherence to the values of the company, impact on the company’s reputation, policy-holder and beneficiary satisfaction, adherence to the risk management policy, leadership, teamwork, creativity, motivation and cooperation with other business units and internal control.

The Bank expects these financial and non-financial criteria to be appropriately balanced. For example, the Bank considers that a system with 80 % financial criteria and 20 % non-financial criteria is not appropriately balanced.

If an insurance company does not comply with the requirements set out above, it should justify this in the explanatory memorandum “Non-compliance Section 8.4”, to be submitted to the Bank through eCorporate.

8.4.4. Downward adjustments

In accordance with Article 275 of Delegated Regulation 2015/35, the measurement of performance as a basis for the calculation of the variable remuneration should include a downward adjustment. The term downward adjustment encompasses all types of adjustments: malus, clawback and in-year adjustments.

Variable remuneration should not only be adjusted downward when the identified staff do not meet their personal objectives, but also when their business units or departments and/or the company as a whole fail to do so. If an insurance company is likely to breach or has breached the solvency capital requirement (SCR), its remuneration policy should prescribe that a downward adjustment will be applied.

The Bank requires insurance companies to ensure that downward adjustments for identified staff receiving significant variable remuneration are described in the remuneration policy, and that this description:

(i) shows how the short and long-term risks, the cost of capital, (internal) capital requirements, as well as the dividends policy have been taken into account (downward adjustment in case of an actual or potential breach of the SCR);

(ii) includes examples of how the downward adjustment works;

(iii) includes the rationale for the chosen downward adjustment and the triggers used; and

(iv) explains that the downward adjustment was designed in a way that, in the event of an individual’s negative contribution to the company’s results in any year of the deferral period, any unvested portion of the variable remuneration may be subject to malus.

If an insurance company does not comply with the requirements set out above, it should justify this in the explanatory memorandum “Non-compliance Section 8.4”, to be submitted to the Bank through eCorporate.

8.4.5. Termination payments

Insurance companies are expected to specify in their remuneration policies the rules applied by them with regard to the potential granting of termination/severance payments to identified staff receiving significant variable remuneration, including the maximum amount authorised for termination payments or the criteria used to determine the amount of the payment. The concept of termination payment used here should be understood in the broad sense and cover all payments to identified staff in relation to their termination, regardless of the form, in addition to compensations in lieu of notice.

In general, termination payments are qualified as variable remuneration. However the following amounts of termination payments do not qualify as variable remuneration:

a) mandatory payments under Belgian labour law, mandatory payments following a court decision or payments which are calculated through a predefined generic formula set within the remuneration policy;

b) payments made as a result of a non-competition clause in the agreement and awarded in future periods up to the amount of the fixed remuneration which would have been paid for the non-competition period if the person concerned were still employed at the insurance company; and

c) payments that belong to the category listed in the following paragraph and that do not fulfil the condition in point (a) above, where the company has demonstrated to the Bank the reasons for and the appropriateness of the amount of the termination payment.

Conversely, the termination payments made under the following conditions do qualify as variable remuneration:

a) when the insurance company terminates the agreement because of a failure of the company;

b) when the insurance company terminates an agreement following a material reduction of the activities in which the person concerned was active or where business areas are acquired by another insurance company without the option for this person to stay employed in the acquiring company;

c) when the company and the person concerned agree on a settlement in case of a potential or actual labour dispute, to avoid a decision on the settlement by the courts.

When assessing the company’s remuneration policy and discussing the termination payments, the Bank will verify that:

(i) the calculation of the fixed/variable remuneration ratio takes into account, on the one hand, the sum of any higher amounts than the fixed remuneration for the future periods which would have been paid as a result of a non-competition clause if the person concerned were still employed at the company and, on the other hand, any other payments made as termination payments that are not included in the above list of termination payments that do not qualify as variable remuneration;

(ii) the amount of the termination payments and the criteria used to determine this amount accurately reflect the effective performance achieved over time by the person concerned;

(iii) the termination payments that qualify as variable remuneration are deferred in time in accordance with the deferral rules listed above;

(iv) there is a link between the severity of any failures and the amount of the termination payment, and that the termination payments never reward failures (failures of the company and failures of the person concerned); and

(v) the remuneration policy lists the situations in which termination payments will not be made.

Finally, the Bank expects insurance companies to always be able to demonstrate to it, for each specific case: (i) the reasons for the termination payment, (ii) the appropriateness of the amount awarded and (iii) the criteria used to determine the amount, including that it is linked to the performance achieved over time and that it does not reward failure.

If an insurance company does not comply with the requirements above, it should justify this in the explanatory memorandum “Non-compliance Section 8.4”, to be submitted to the Bank through eCorporate.